Dragonfly Energy Holdings Corp. Income Taxes Disclosure

Note 13 - INCOME TAXES

 

The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which taxes are expected to be paid or recovered.

 

Pre-tax income (loss) from continuing operations for the years ended December 31, 2025 and 2024 is as follows (in thousands):

 

SCHEDULE OF PRETAX INCOME LOSS FROM CONTINUING OPERATIONS 

		2025				2024
Domestic		$	(70,033	)		$	(40,615	)
Foreign			-				-
Total		$	(70,033	)		$	(40,615	)

 

The (provision) benefit for income taxes for the years ended December 31, 2025 and 2024 was as follows (in thousands):

SCHEDULE OF INCOME TAX EXPENSE 

		2025				2024
Current - Federal		$	(103	)		$	-
Current - State			9				-
Total tax expense		$	(94	)		$	-

 

Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows (in thousands):

SCHEDULE OF CASH PAID FOR INCOME TAX NET OF REFUNDS 

		2025
Federal		$	-
State			7
Foreign			-
Cash paid for income taxes, net of refunds received		$	7

 

 

Dragonfly Energy Holdings Corp.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

 

Note 13 - Income Taxes (Continued)

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences are as follows (in thousands):

 SCHEDULE OF COMPONENTS OF DEFERRED TAX ASSETS (LIABILITIES)

 

		2025				2024
Deferred tax assets:
Start up costs		$	721			$	793
Lease liability			5,214				5,860
Stock based compensation			63				115
Accrued expenses			1,109				1,291
Allowance for bad debt			87				59
Research and development credit			875				875
Fixed assets and intangibles			2,096				2,896
Interest expense			10,977				8,211
Prepaid expenses			-				320
Settlement accrual			-				574
Deferred revenue			586				-
Net Operating Loss			19,340				12,813
Inventory (Sec. 263A)			186				175
Deferred tax asset		$	41,254			$	33,982
Deferred tax liabilities:
Right of Use Asset			3,454				4,533
Fixed assets and intangibles			47				-
Deferred tax liability			3,501				4,533
Net deferred tax asset (liability)			37,753				29,449
Valuation Allowance			(37,753	)			(29,449	)
Net deferred tax asset		$	-			$	-

 

 

Dragonfly Energy Holdings Corp.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

 

Note 13 - Income Taxes (Continued)

 

Reconciliation between the effective tax rate on income from continuing operations and the statutory rate for the year ending December 31, 2025 and 2024, is as follows:

SCHEDULE OF RECONCILIATION BETWEEN THE EFFECTIVE TAX RATE ON INCOME FROM CONTINUING OPERATIONS AND THE STATUTORY RATE 

		2025
		Tax				Percentage
Book loss before taxes		$	(14,707	)			21.00	%
Permanent differences (other than tax)
Loss on extinguishment of debt			6,687				(9.55	)%
Term loan principal forgiven			1,050				(1.50	)%
Warrants			(1,075	)			1.53	%
Stock based compensation			201				(0.29	)%
Nontaxable and nondeductible items			26				(0.04	)%
State taxes, net(1)			8				(0.01	)%
Research and development credits			-				-	%
Uncertain tax positions			(55	)			0.08	%
Other			1				0.00	%
Deferred true-up			40				(0.05	)%
Change in valuation allowance			7,730				(11.04	)%
Total		$	(94	)
Effective tax rate							0.13	%

 

(1)	State of Texas makes up the majority of the tax effects in this category.

 

		2024
		Tax				Percentage
Book loss before taxes		$	(8,529	)			21.00	%
Permanent differences (other than tax)
Nontaxable and Nondeductible items			(259	)			0.64	%
State taxes, net			(931	)			2.29	%
Research and development credits			(29	)			0.07	%
Uncertain tax positions			(36	)			0.09	%
Other			94				(0.23	)%
Deferred true-up			(142	)			0.35	%
Change in valuation allowance			9,832				(24.21	)%
Total		$	-
Effective tax rate							0.0	%

 

The tax returns of the Company are open for three years from the date of filing. At the report date, federal tax returns are open for the Company for 2022, 2023 and 2024.

 

In 2025, the Company paid the state of Texas in the amount of $4.

 

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not yet evaluated if section 382 was triggered.

 

Subject to the limitations described below, as of December 31, 2025, the Company had federal net operating loss carryforwards of approximately $84,559 available to reduce future taxable income which do not expire, but are limited to 80% utilization against taxable income. As of December 31, 2025, the Company had state net operating loss carryforwards of approximately $38,553 available to reduce future taxable income, which start to expire in 2037. The Company also had research and development credits of $875 as of December 31, 2025 to offset future federal income taxes, which are set to expire in 2042.

 

Management of the Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize the benefits of the deferred tax assets. As a result, a full valuation allowance was recorded as of December 31, 2025. The valuation allowance as of December 31, 2025 was $37,753, primarily due to the company entering into a 4 year cumulative loss position and no expectation of income for the year ended December 31, 2025. Valuation allowance total increased by $8,304. Federal portion of this number is $7,730 and the rest is a state portion of $574.

 

 

Dragonfly Energy Holdings Corp.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

 

Note 13 - Income Taxes (Continued)

 

As part of the Tax Cuts and Jobs Act enacted in December 2017, taxpayers were required to capitalize research and experimental expenditures under Section 174 and amortize them over five years if incurred in the United States and over fifteen years if incurred in a foreign jurisdiction for tax years beginning on or after January 1, 2022. In 2025, the One Big Beautiful Bill (Public Law 119-21) introduced Section 174A, which permits taxpayers, for tax years beginning after December 31, 2024, to currently deduct qualifying domestic research and experimental expenditures or, at the taxpayer’s election, capitalize and amortize such expenditures over a period of not less than 60 months, while the requirement to capitalize and amortize foreign research and experimental expenditures over fifteen years remains in effect. The change in tax law reduces deferred tax assets associated with previously capitalized domestic research and experimental expenditures and increases the current deductibility of such costs for the year ended December 31, 2025. Provisions of this law did not have a material effect on our financial statements.

 

The roll-forward of the Company’s gross uncertain tax positions is as follows:

 SCHEDULE OF GROSS UNCERTAIN TAX POSITIONS

		Gross Uncertain Tax Position
Balance at January 1, 2024		$	91
Additions for current year tax positions			(36	)
Balance at December 31, 2024			55
Expiration			(55	)
Balance at December 31, 2025		$	-